Extract from The Business Times

Development charges (DC), payable to the state in exchange for the right to enhance the use of certain sites or to build bigger projects on them, are expected to head north from Sept 1, based on the increases in land values over most of the past six months.

However, the rate hikes may be smaller than the previous six-monthly revision amid early signs that pricing for condo land for instance is starting to come off due to the deterioration in global economic sentiment.

"We may be faced with a difficult situation when DC rates are set based on evidence of the past few months, while land prices may start to taper off going forward due to a more uncertain outlook", said Credo Real Estate executive director Ong Teck Hui.

The Ministry of National Development, in consultation with the Chief Valuer, revises DC rates across 118 geographical sectors in Singapore. The revisions, done twice a year, are based on current market values.

In the previous revision effective March 1, the average DC rate for commercial use was raised 12.7 per cent. Property firms Jones Lang LaSalle and DTZ predict a further increase of about 5 - 10 per cent this round; Savills Singapore's forecast is a hike of around 8.5 per cent.

Analysts say that the winning bids for two sizable commercial plots in Paya Lebar and Boon Lay Way at state tenders in April and May will pave the way for higher commercial DC rates, especially in suburban locations.

The prices for the two sites reflect premiums of about 139 per cent and 147 per cent respectively over implied land valued based on current March 1, 2011 DC rates for commercial use in these regions.

DC rates are tracked in property circles as they reflect land values and can impact redevelopment sites with sizable DC component.

While most consultants expect smaller increases in average DC rates for landed and non-landed residential uses than the 18.4 per cent and 10.6 per cent respectively that took effect on March 1, JLL's South-east Asia research head Chua Yang Liang thinks otherwise. For landed use, he predicts a 15 - 20 per cent rise, due to continued strong interest in landed homes in the past six months, which has resulted in "sturdy rises in land values".

Dr Chua also expects an increase of up to 15 - 20 per cent on average for non-landed DC rates.

At state tender earlier this month, a condo plot near Potong Pasir MRT Station drew a top bid that was 6.6 per cent below that a neighbouring site in June last year. The price for the latest plot reflects a 6 per cent premium to the DC rate-implied land value, which marks a slowdown from the 141 per cent premium for a Bendemeer plot sold in April to United Engineers (UE).

Credo's Mr Ong says that there should be some moderation in hikes. "Bidding for condo plots at state tenders has slowed lately and there are early signs of land values starting to come off in view of a build-up in supply as well as global market turmoil.

[PS: We can only wait and see.]